PROJECT ON RESEARCH METHODOLOGY. CRISIS OF KINGFISHER AIRLINES. EXECUTIVE SUMMARY:- Our Research is mainly based on the intensive study of crisis faced by Kingfisher Airlines owned by Business tycoon Vijay Mallya. Kingfisher Airlines began its operations on 9th May, 2005 and ever since 2005 Kingfisher Airlines has blazed trial of innovations and introduced a range of market. On June 15, 05 it became first and only Indian Airline to order Airbus. As of July 2007, Kingfisher operates only on domestic routes; however it started its international operations on 3rd September, 2008 with a flight between Bangalore and London, and later on added new international destinations, namely Hong Kong, Dhaka, Colombo, Singapore, Dubai and Bangkok. However, on 15th September 2009, Kingfisher Airlines withdrew the London service. As life is full of up’s and down’s Mr. Mallya also is now facing the Question of its survival in the Airline sector due to its Losses and heavy Debts. 1 | Page
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PROJECT ON RESEARCH METHODOLOGY.CRISIS OF KINGFISHER AIRLINES.
EXECUTIVE SUMMARY:-
Our Research is mainly based on the intensive study of crisis faced by
Kingfisher Airlines owned by Business tycoon Vijay Mallya. Kingfisher Airlines
began its operations on 9th May, 2005 and ever since 2005 Kingfisher Airlines has
blazed trial of innovations and introduced a range of market. On June 15, 05 it
became first and only Indian Airline to order Airbus. As of July 2007, Kingfisher
operates only on domestic routes; however it started its international operations on
3rd September, 2008 with a flight between Bangalore and London, and later on
added new international destinations, namely Hong Kong, Dhaka, Colombo,
Singapore, Dubai and Bangkok. However, on 15th September 2009, Kingfisher
Airlines withdrew the London service. As life is full of up’s and down’s Mr. Mallya
also is now facing the Question of its survival in the Airline sector due to its Losses
and heavy Debts.
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PROJECT ON RESEARCH METHODOLOGY.CRISIS OF KINGFISHER AIRLINES.
OBJECTIVES:-
a. To create awareness regarding the crises of Kingfisher airlines.
b. To obtain information regarding the crises of kingfisher airlines.
c. To extent knowledge.
d. To find out major areas, which has led to crises?
e. To find out a proper effective solution.
f. Effect of Kingfisher Airlines crises on Airline sector.
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RESEARCH METHODOLOGY:-
Research Methodology deals with collection of Data which are of two types
Primary and Secondary data.
Our research is based on secondary type data collection which includes
second hand data. In simple words it is a data which is not collected directly from a
user. It’s collected via Newspapers, Magazine, Websites, Expert’s advice, old
research literature, etc.
Our data is collected through Websites and Newspapers.
INDEX:-
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Sr. No. Topic Page No.
1. Review Of Literature. 5
2. Findings. 12
3. Analysis & Interpretations. 14
4. Recommendation. 17
5. Conclusion. 18
6. Bibliography. 19
REVIEW OF LITERATURE:-
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Kingfisher Airline was established in 2003, owned by the Bengaluru based
United Breweries Group. It began its operation on 9 May 2005, following the lease
of four Airbus A320 aircraft. Kingfisher Airline became the first and only Indian
airline to order the Airbus A380. On 7 June 2010 Kingfisher became a member
elect of the Oneworld airline alliance when it signed a formal membership
agreement. The Airlines serves 63 domestic destinations and 8 international
destinations in 8 countries across Asia and Europe.
Kingfisher Airlines have won
many awards and achievements King
Club has won Top Honours at the
21st Annual Freddie Awards in the
Japan, Pacific, Asia and Australia
region. Kingfisher Airlines has
received three global awards at the
Skytrax World Airline Awards 2010
and many more achievements are in
Kingfisher Airlines bag.
Kingfisher Airline Listed in the top 100 most trusted brand in The Brand
Trust Report.
Since 2010 Kingfisher Airlines faces some ups and downs in Nov 2010.
Kingfisher, 'the king of good times' has managed to change its tagline to 'the king
of bad times'. The UB spirits tag line can be used very appropriately for what
Mallya is currently going through with his Kingfisher Airlines. What made the fall
of the King of good times?
Kingfisher Airlines is one of the only seven airlines awarded 5-star rating by
Skytrax. Kingfisher operates more than 375 daily flights to 71 destinations, with
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regional and long-haul international services. In May 2009, Kingfisher Airlines
carried more than 1 million passengers, giving it the highest market share among
airlines in India. The airline started commercial operations in 9 May 2005 with a
fleet of four new Airbus A320-200s operating a flight from Mumbai to Delhi.
Kingfisher Airlines has
accumulated loss of over Rs 4,283
crore (Rs 42.83 billion) at the end
of March 31, 2011 and never made
even a rupee in profit since it was
launched in 2005.
In Nov 2010, Kingfisher
Airlines has completed
restructuring 8,000 crore ($1.62
billion) debt, with all 18 lenders
agreeing to cut interest rates and convert part of loans to equity.
In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the
fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-
payment of dues. Situation was later resolved. In the past several years, Kingfisher
airlines have had trouble paying their fuel bills. Bharat Petroleum Corporation in
2009 had filed a case against Kingfisher airlines for non-payment of dues. High
court in an order said that the entire amount ($49.69 million) had to be paid by Nov
2010 and the airline paid it in installments.
In Nov 2008, GE Commercial Aviation Services threatened to repossess 04
leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the
payments. In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore),
sued Kingfisher Airlines for lease rental default. Case was filed in a UK court on
Jul 16, 2010 after Kingfisher did not pay for three month lease rental for A320
aircraft it leased from DVB.
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Salaries were normally credited to the accounts of its employees on the 7th
day of every month. It has also been alleged that the tax company deducted from the
salaries wasn't being paid to the tax department. Its total debt rose to an alarming
proportion before the Reserve Bank of India approved debt restructuring by public
sector and private banks in early 2011. After recast, Kingfisher Airlines total debt
reportedly came down to Rs 7,057 crore which is still considered very high for a
private domestic carrier.
In the debt
restructuring done by
banks, 13 in all, they agreed
to convert a big part of their
debt into equity by
acquiring the Kingfisher
Airlines share at Rs 63 per
share as against the then
prevalent price of Rs 40.
The banks, in all, hold over
24 percent of the airline
equity. But between then and now, the share value has eroded sharply to around Rs
22 which is just one-third of what it was when the shares were given to them as part
of debt restructuring. So one can imagine how the banks have also suffered a
serious blow.
Kingfisher Airlines has delayed salaries (for Jul 2011) of its employees in
Aug 2011. The management stated that it does not have the money, and has not
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given any date for the payment. Kingfisher airline had earlier stated that due to the
bank strike, the salaries could not be processed.
Salaries were normally credited to the accounts of its employees on the 7th
day of every month. It has also been alleged that the tax company deducted from the
salaries wasn't being paid to the tax department.
After all, about two months back, media reported the observations made by
Kingfisher Airlines' auditors -- namely, B K Ramdhyani & Co. In accounting
parlance, they asked if Kingfisher Airlines could be even described as a 'going
concern' and these remarks were published in the 2010-11 annual report of the
company.
A 'going concern' refers to a company's ability to continue functioning as a
business entity in the near future and it is extremely rare that auditors make such
mention in the passing.
Welcoming the Prime Minister Dr Manmohan Singh's recent statement that
the Government would find ways to solve the aviation industry's financial troubles,
he said: "The Prime Minister is an economist who understands the importance of
connectivity."
About the dues to oil companies, he said the airline has paid two state-owned
oil companies Indian Oil and Bharat Petroleum in full. "We don't owe those single
paise."
On the Rs 600-crore worth of unsecured dues to HPCL, the Chairman said
the oil firm has been given bank guarantees and our unsecured credit has now
come down to Rs 40 crore only.
The chief of the UB Group,
which runs Kingfisher, also
announced that the company has
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applied to the Directorate General of Foreign Trade (DGFT) for direct import of jet
fuel, which would reduce fuel costs drastically. Jet fuel costs are almost 50 per cent
of the total operating costs of the airline. Mallya also said there were varied credit
lines with various suppliers and vendors of the airline and refuted reports that
certain lessors wanted to take back some of the leased aircraft in the Kingfisher
fleet.
Referring to the cancellation of more than 200 flights over the past week, he
justified the move saying it was a commercially prudent decision.
The entire restructuring also included a reduction in interest rates. The
banks took a revenue loss of around Rs 500 crore when the debt was converted into
equity.
The bankers of Kingfisher, who met in Mumbai on Saturday, are holding
further rounds of talks on its debt restructuring.
Top government officials said the troubled private carrier may get support
from public sector banks as finance minister Pranab Mukherjee had put in a word.
But the government is in a fix as any incentive offered to Kingfisher would mean
other airlines, too, would ask for the same.
Kingfisher is looking for additional working capital to tide over its cash
crunch. It has approached lender banks for a reappraisal of working capital
requirements following a surge in the price of jet fuel in recent months.
Last month, it axed its low-cost
service Kingfisher Red to maximise
revenues from full-fare flights. Top
officials said the airline was also
contemplating laying off a few
thousands employees to stay afloat. On
Sunday, Kingfisher cancelled 40 more
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flights taking the total to over 250 in one week and putting thousands of passengers
to inconvenience.
“We cancelled flights not because we could not afford to. Even today
Kingfisher is operating the rest of its schedule ... We could have handled the
situation better. But it (flight cancellations) was a commercially prudent decision,"
Mallya said.
DEBT CONSTRUCTION
Kingfisher has been asked by its creditors to raise $160 million in equity.
Hemant Contractor, managing director of creditor State Bank of India, had said
the airline was considering a proposal to sell real estate, but Mallya denied the firm
was considering that course of action.
The carrier, which has never turned a profit since its launch in 2005, saw its
fuel bill jump 70% in the September quarter from a year earlier.
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While passenger revenue rose 9%, its revenue per average seat kilometre fell
by 16% from a year even as it’s cost per average seat kilometre rose 8%.
Earlier this year, Kingfisher, India’s No.2 carrier by market share, cut its
debt through a restructuring by issuing shares to 14 banks, including State Bank of
India and ICICI Bank, the country’s two biggest lenders.
Kingfisher’s net loss in the quarter ended 30 September deepened to Rs. 469
crore ($93 million) from Rs. 231 crore in the year-ago period. Its loss was its biggest
since the March 2010 quarter.
“While all airlines have taken a deep hit this quarter because of high fuel
prices, Kingfisher is in such a bad shape that they need to look for funds to stay
afloat,” said Neeraj Dewan, director at New Delhi-based Quantum Securities.
FINDINGS:-
MOUNTING LOSSES
Since inception, Kingfisher Airlines is yet to post profit on annual & total
cost basis. Following are financial results of Kingfisher Airlines, all numbers are
in Indian rupee (INR) crore:-
Sr. No. From To Months Total Income Cost Net Profit
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01 Apr-05 Jun-06 15 1,352 1,689 -337
02 Jul-06 Jun-07 12 2,142 2,562 -420
03 Jul-07 Mar-08 09 1,546 1,734 -188
04 Apr-08 Mar-09 12 5,577 7,186 -1,609
05 Apr-09 Mar-10 12 5,271 6,918 -1,647
06 Apr-10 Mar-11 12 6,496 7,523 -1,027
07 Apr-11 Sep-11 06 3,410 4,142 -732
Total 78 25,793 31,754 -5,960
FUEL DUES
HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped
the fuel supplies for about two hours to Kingfisher airlines owing to the non-
payment of dues. Situation was later resolved. In the past several years,
Kingfisher airlines have had trouble paying their fuel bills.
BPCL: Bharat Petroleum Corporation in 2009 had filed a case against
Kingfisher airlines for non-payment of dues. High court in an order said that
the entire amount ( 245 crore (US$49.69 million) had to be paid by Nov 2010
and the airline paid it in installments
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MISTAKES COMMITTED BY KINGFISHER:
Here are some of the possible decisions and factors that led the Kingfisher
Airlines into the crisis.
It borrowed heavily to fund loss making airline and fell into a debt trap.
It bought new aircraft when the industry suffered from heavy capacity.
Kingfisher was blinded by a desire to overtake Jet Airways and become the
king of skies
Focusing in flamboyance, it ignored the low cost airline model.
Price of Rupee Depreciating which has also to its crises.
ANALYSIS & INTERPRETATIONS:-
Over the past few days, a lot has been said, and even more speculated by the
media and the common man about the Kingfisher Airlines working schedule and
their losses. There was a phase when we even heard news like "Poor days for the
Good Times", "Kingfisher to shut down", and even "Kingfisher asks for a bailout
plan". While the first one can be said to be correct, the media speculating about the
future of the airlines without knowing much about its plans was nothing less than
rubbish talks. As everybody knows, media in India is more about making hype of a
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thing than to present its actual reality, and this being such a big news had no
chances of being spared.
Kingfisher Airlines, no doubt, is trouble-ridden and desperately needs some
capital to get rid of its debts. But never has Dr. Mallya asked the Indian
Government for a bailout. While on the one hand, Dr. Mallya has never seen
Kingfisher Airlines gain profit from its operations, one cannot ignore the fact that
he is also the Chairman of the United Breweries Group, India's number 1 and
world's number 3 spirits company. He has enough assets held with the UB Group,
and at any point of time, he will consider going for a capital exchange with UB
Group rather than asking the government for a bailout by using the taxpayers'
money. And why should he continue flights to routes that only make losses? We
don't see logic behind it, at all. In fact, cutting down the flights will only boost up
the airline's performance and will help them provide better services in future.
Coming to the demands made by him, we did not find a single point where we
could prove him wrong, or even 'greedy'. After all, being a businessman, you always
aim at making profit, and there's nothing wrong with it. When he asks for lowering
of taxes on the ATF, he is not asking that for Kingfisher Airlines only. The Indian
Government has been offering infinite subsidies on items like LPG, Diesel and
Kerosene for years now. The airline companies just want lowering of the taxes, not
a subsidy, and this will ultimately improve the performance of the worst performing
air carrier of the country, Air India, as well. For the last two years, the civil aviation
department have been infusing millions of Rupees in Air India to sustain its
capabilities. And we are not surprised that the media has not taken the hype to a
great level, after all the media is controlled by the Government policies.
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Let's forget about the ATF prices for sometime and talk about the Forex.
Today, Rupee hit an all-time low of 52.65/1$, and the RBI has till now only hinted
for some actions. There have been earlier periods of volatility and the RBI was
quick to respond all those times. A weakening rupee results in increase of costs of
the imported items, mainly fuel, and if the RBI wants to reduce the inflation rate, a
weakening rupee is certainly not going to help it out.
Today, even the auditors of Jet Airways have asked the company to raise
funds in order to continue its operations in an efficient manner. Jet Airways has the
biggest market share with a quarter of passengers using the airlines. However, the
Forex has troubled the airline way too much. Air India, no matter how much debt-
ridden it is, will continue funding from the Central Government. But something
needs to be done desperately for saving the private airline companies. They cannot
groom until and unless they earn some profits. The state government, even if it
reduces the taxes on the ATF, can perform much better with less capital with a
better and corruption-free system. However, we know that this is not possible and
the airlines are paying for it.
Anyways, all said and analysed, the only thing we, the common people, can
do is hope that the airlines do get some relief from the government in the form of
either tax reduction, or inclusion of Foreign Direct Investments. Air traffic in India
is growing at the rate of about 20-25% per quarter, and it will only hurt the
travellers of they have to pay higher prices for a journey because of a low
competition caused by the shutting down of companies/routes due to excessive
losses.
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RECOMMENDATION:-
o To cut down debt kingfisher should sale out its property.
o We don’t support the bail-out plan from the Government for Kingfisher
Airlines.
o Private sector players must not be supported by the Government for their
Survival. This will spoil the competition between the private sector players.
It’s a free entry and exit.
o Vijay Mallya of kingfisher airlines must sale-off its assets to minimise its
debts.
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o The plan to raise more debt is completely a wrong idea and an unhealthy
plan.
o Demanding for more debts even when the airline is making no profits is a
wrong judgement or view. Airlines must not play with the money of investors
otherwise more adverse effect will be marked in the future.
CONCLUSION:-
It has been very glad to work on this research oriented wonderful project.
The co-ordinated efforts of all the members had really made the project fantastic
and well-defined.
The project is based on the Crisis of kingfisher airline and various other
aspects of it.
Eventually WE would like to give a batch of thanks to all the peoples who
have helped us in the making of this project.
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